America’s got talent, but not nearly enough

President Trump has proposed cutting the number of green cards issued each year from one million to 500,000 and issuing them based on skill levels. This approach gets it half right. Increasing skills-based immigration would be good for the economy. But if America issues green cards based on skills, cutting the number would squander the best opportunity for economic growth.

@jijieforsythe via Twenty20

Without substantial immigration, the U.S. simply can’t produce enough growth to pay for retiring baby boomers without inflicting considerable damage on the economy—and, by extension, on national security. The Congressional Budget Office expects federal spending as a percentage of gross domestic product to increase by nine points as baby boomers retire over the next 30 years. Together with state and local spending, total government spending is projected to rise to 45% of GDP. A spending level that high, especially one largely driven by entitlement spending, will slow growth significantly. The notion that the younger electorate can outvote baby boomers to reduce their benefits significantly is highly doubtful.

With the Chinese economy expected to surpass America’s in size within 10 to 15 years, the U.S. needs to do more than pay for retiring baby boomers. It needs to grow quickly enough to maintain a strong national defense. Boosting growth with high-skilled immigration is the only viable alternative.

If innovation is the primary driver of growth, and the most productive workers are the primary drivers of innovation, doubling the number of workers who currently represent the top 5% of America’s talent could double the U.S. growth rate. America has 125 million full-time workers, so the top 5% is just over six million. The U.S. currently issues a million green cards a year. By targeting the most talented would-be immigrants, the U.S. could double its high-productivity pool in short order.

To minimize competition with the domestic workforce, the U.S. could recruit and employ the rest of the world’s best engineers. The highest-scoring American students have increasingly moved away from STEM fields—science, technology, engineering and math—toward business and law. America’s success relative to Europe and Japan—both of which produce a greater share of STEM graduates—indicates that innovation requires a combination of STEM and commerce to succeed. The rest of the world is racing to educate more business majors but continues to graduate a disproportionate number of engineers.

American companies already employ many of those engineers, who work remotely using tools like Skype. When companies employ these workers offshore, Americans don’t enjoy the benefit of the income-tax revenues they’d pay—for the top 20% of U.S. taxpayers, $50,000 a year more than the government services they consume. America needs that revenue. Nor does the rest of America’s workforce get the opportunity to teach their children, wait on their tables, or treat their medical needs. Growth can raise wages across all skill levels.

It’s an error to suggest that a greater share of Americans could do these ultra-high-skilled jobs. Competition demands the highest-IQ problem solvers. Companies who need problem solvers like that can’t settle for less. They will continue to recruit these workers wherever they find them.

Can America’s education system produce the necessary increase in ultra-high-skilled workers? Decades of effort have produced no significant increase in academic scores. A large share of high-scoring American students avoid the difficulty of STEM careers despite rising wages. And any educational improvement is likely to come gradually and suffuse into the workforce slowly. America needs growth now.

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Expert analysis from AEI's Economics Policy scholars

In truth, America has a shortage of talent. Some 25% of American workers score in the top third globally on comparable international tests of academic skills, according to data from the Organization for Economic Cooperation and Development. Forty-five percent score in the bottom third. There is approximately one high-scoring adult American for every two low-scorers. By comparison, Germany has a roughly equal number of high- and low-scorers—about a third of each—giving Germany almost twice as many high scorers per low scorer than America. Scandinavia has three times as many high scorers per low scorer as America. Japan has almost five times as many. The economic effects of this talent deficiency hurt low-skilled workers, who depend on high-skilled workers to design and manage competitive products and processes that employ them.

To be sure, American institutions amplify the productivity of America’s most productive workers more than elsewhere, through on-the-job training at companies like Google, and with synergistic communities of experts like Silicon Valley. But the higher productivity these institutions create leads to higher wages, which draws scarce talent away from supervising low-skilled labor. An influx of talent could increase the quality of talent devoted to low-skilled supervision. A larger talent pool would help the economy grow and make everyone more productive, allowing baby boomers to retire without damaging the country.

Discussion:
(2 comments)

“Without substantial immigration, the U.S. simply can’t produce enough growth to pay for retiring baby boomers without inflicting considerable damage on the economy”

WRONG. This is rear-view mirror thinking. The idea that we must import people to support aging population over the next 30 years ignores the reality of the continued rapid advancement of technology. One obvious example, 3.5 million people make a living “driving” a vehicle in US today. Intelligent machines will one day provide this value. Limiting the import of labor will accelerate investment in automation.
GDP growth is not important. We are big enough to protect ourselves. It is now per capita GDP and median income growth that matters. Since we simply must stabilize population sometime (hence creating a wave of older people), we should stabilize before we have anywhere near the population density of India or China. Stupid to start your diet when you weigh 300 pounds! Limiting the massive migration into our country will preserve our natural environment and leave more resources available per person as our tools continue to make life easier for everyone. We are not morally obligated to absorb the overpopulation from the rest of the world.

As a naturalized citizen who arrived into the U.S. legally, grew up poor, worked as I earned my BA and MSc in Econ. Stats., Financial Analysis, I am long term unemployed as the jobs I have applied to are awarded to H1B and green card holders, as are the education scholarships. Good grades do not matter. From my experiences, I would discourage any U.S. citizen from studying the STEM subjects because those jobs are awarded to foreign visa holders. There is plenty of qualified talent, but the HR industry is hiring foreign workers. I am worse off than my parents who had much less education. With an Economic education, you are wrong. So where is my job ? What are you doing to promote Equal Employment Opportunity ?